Concern over the breadth of medical errors in U.S. hospitals has increased in recent years. While initiatives to improve patient safety have mounted, to date there is limited understanding of the costliness of various adverse inpatient events. This project addresses this gap in awareness through a hospital level empirical analysis, which examines the relative economic costs of a broad range of adverse patient safety events in the context of other factors that simultaneously affect a hospital's costs. The major research objectives are to: 1. Establish the empirical relationship between potentially preventable adverse inpatient events and complications and hospital costs. 2. Assess the potential for cost savings associated with reduction of adverse events and complications in U.S. hospitals. The project takes a hospital cost function approach to determining the relationship between costs and patient safety at the level of the hospital, using AHRQ patient safety indicators (PSIs) as controls for hospital quality. It adjusts for hospital efficiency through application of the stochastic frontier cost regression model. Panel data methods are applied, drawing data from the Medicare Cost Reports, the American Hospital Association Annual Survey Database, and the AHRQ HCUP state inpatient databases for New York, Michigan, Florida, and Arizona for the years 2001 through 2006. In addition to the PSIs, the cost function controls for inpatient discharges, outpatient visits, average length of stay, input prices, inpatient and outpatient case mix, hospital size, competition within local hospital markets, teaching mission, ownership status, and urban location. From regression estimates, predicted levels of hospital costs are used to simulate the costliness of adverse safety events, as well as the cost distribution across different types of events and different types of hospitals.